“For many, this pursuit of profit over growth started in early 2022, and we are now seeing a number of companies that have successfully navigated the transition and no longer need to raise as much or as frequently to pursue their scale ambitions.”
Other notable findings in the study was that 75 per cent said their company did not intend to pursue a liquidity event (meaning an initial public offering or trade sale) in the next 12 months, and 62 per cent remain optimistic about the long-term prospects for Australian start-ups.
Inevitable ‘down rounds’
Asked by The Australian Financial Review about the findings, founders and investors suggested there was a degree of wilful ignorance about valuations, and investors said dreaded “down rounds” where valuations fall, and certainly flat rounds, were the best many could expect.
“Entrepreneurs are always nervous around the optics of a down round,” said Jonathan Barouch, founder of software company Local Measure. “However, if capitalising the business is the best outcome for shareholders, it is sometimes best to take that medicine early and live to fight another day.
“We went through a similar experience over the last 24 months and have come out the other side significantly stronger.”
Mr Barouch said he could feel the energy coming back into the VC market in the past few months and he was now fielding almost daily calls from VCs, whereas these outreaches had slowed to a trickle during 2023.
One experienced VC operator, who requested anonymity, said the findings of the survey indicated that start-up founders were optimists innately, but that for them to be right, Australia would have to dramatically outperform the US and other markets.
“This is delusional wishing, and hope over probability because there is no way 60 per cent of funded start-ups will be raising at higher than their last valuation,” the VC investor said.
“In some cases you can get a higher valuation but with other pretty draconian terms. Some will get higher valuations at normalised terms, but they will be companies that have been performing well and be on lower annualised revenue multiples than the past.”
Tech investor and entrepreneur Adir Shiffman said the “dream world” talk about valuations demonstrated the overoptimism that founders needed, but he was shocked by the statistic that 62 per cent felt optimistic about the long-term prospects for Australian start-ups.
“I’m shocked that 38 per cent of Australian founders, a group who are generally unreasonably optimistic about the potential for success, now believe the future is no longer bright for start-ups in Australia,” he said.
“It means there will be fewer second-time founders who failed the first time, they will go and get a job instead. That’s a big issue, because in my experience first-time founders are no match for those who have failed, learned from their failure, and are now wiser and battle hardened.”
